Homebuyer Tools

Common Lending Terms

Buying a home comes with a whole new vocabulary. We've put together this reference guide to help you decode the terms you'll hear from lenders, your agent, and at the closing table. If something isn't here or you'd like it explained further, don't hesitate to reach out.

• Amortization

  The process of paying off a loan through regular monthly payments over time. Early payments go mostly toward interest; later payments shift toward principal. A 30-year loan has 360 amortization periods.
• APR (Annual Percentage Rate)

  The true yearly cost of a loan, including both the interest rate and lender fees (origination, points, etc.). Always higher than the interest rate alone. Use APR — not just the rate — to compare offers apples-to-apples.
• Appraisal

  A licensed appraiser's professional estimate of a home's market value. Lenders require an appraisal to confirm the property is worth at least what they're lending. If the appraisal comes in low, it can affect your financing or purchase price.
• Closing Costs

  Fees and expenses paid at settlement, typically 2–5% of the loan amount. These include lender fees, title insurance, escrow setup, prepaid taxes/insurance, and recording fees. Some can be rolled into the loan; others must be paid upfront.
• Closing Disclosure (CD)

  A federally required 5-page document provided at least 3 business days before closing. It itemizes all final loan terms, monthly payment, and closing costs. Compare it carefully to your Loan Estimate.
• Conforming Loan

  A conventional mortgage that meets Fannie Mae / Freddie Mac guidelines, including loan limits set annually by the FHFA. Conforming loans typically offer lower rates than jumbo loans. Limits are adjusted each year — your lender can confirm the current threshold for your area.
• Conventional Loan

  A mortgage not backed by a government agency (FHA, VA, USDA). Typically requires higher credit scores and a 3–20% down payment. With less than 20% down, PMI is required until you reach 20% equity.
• Debt-to-Income Ratio (DTI)

  Your total monthly debt payments (including the new mortgage) divided by your gross monthly income, expressed as a percentage. Most conventional lenders prefer a DTI below 45%. FHA loans may allow up to 57% in some cases.
• Discount Points

  Optional upfront fees paid to permanently lower your interest rate. One point = 1% of the loan amount. Buying points makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments.
• Earnest Money Deposit (EMD)

  A good-faith deposit made when your offer is accepted — typically 1–3% of the purchase price — held in escrow. It applies toward your down payment or closing costs at closing. If you back out without a contingency, you may forfeit it.
• Escrow

  Funds held by a neutral third party. Used two ways in real estate: (1) holding your EMD during the transaction, and (2) your monthly escrow account managed by the servicer to collect and pay property taxes and homeowners insurance.
• FHA Loan

  A government-backed loan insured by the Federal Housing Administration. Requires as little as 3.5% down and accepts credit scores as low as 580. Requires mortgage insurance for the life of the loan (or 11 years with 10%+ down).
• Fixed-Rate Mortgage

  A loan with an interest rate that never changes over the life of the loan. Your principal and interest payment stays the same for 10, 15, 20, or 30 years. Escrow portions may change annually as taxes and insurance adjust.
• Jumbo Loan

  A mortgage that exceeds the conforming loan limits set by the FHFA. Jumbo loans typically require higher credit scores (700+), larger down payments (10–20%), and more cash reserves. They often carry slightly higher rates.
• Loan Estimate (LE)

  A standardized 3-page form provided within 3 business days of application. It outlines estimated interest rate, monthly payment, and closing costs. Lenders are legally bound to honor most figures within set tolerances.
• Loan-to-Value Ratio (LTV)

  The loan amount divided by the home's appraised value, expressed as a percentage. Example: $400,000 loan on a $500,000 home = 80% LTV. Higher LTV = more risk to the lender, often resulting in higher rates or PMI requirements.
• Lock (Rate Lock)

  An agreement that guarantees your interest rate for a set period — typically 30, 45, or 60 days — while your loan is in process. Locks protect you from rate increases but may have a cost, especially for extended periods.
• Origination Fee

  A lender fee for processing your loan application, typically 0.5–1% of the loan amount. It may be broken out as a flat fee or expressed as points. Always compare origination fees alongside the interest rate when shopping lenders.
• PMI (Private Mortgage Insurance)

  Required by most conventional lenders when your down payment is less than 20%. PMI protects the lender if you default. It typically costs 0.5–1.5% of the loan annually. Automatically cancels once you reach 20% equity (by law, at 22%).
• Pre-Approval

  A lender's written conditional commitment to lend you a specific amount based on verified income, assets, and credit. Stronger than pre-qualification. Sellers and agents take pre-approval letters seriously in competitive markets.
• Pre-Qualification

  An initial estimate of how much you may be able to borrow, based on self-reported information without verification. It gives you a ballpark but carries little weight with sellers. Pre-approval is the standard in most markets today.
• Principal

  The original amount borrowed, or the remaining balance you owe on your mortgage. Each monthly payment reduces your principal balance, building equity in your home over time.
• Title Insurance

  A one-time premium paid at closing that protects against claims or defects in a property's title — such as undisclosed liens, forgeries, or ownership disputes. There are two policies: lender's (required) and owner's (highly recommended).
• Underwriting

  The lender's formal process of verifying your income, assets, credit, and the property before approving your loan. An underwriter may issue conditions — additional documents or explanations required before final approval.
• VA Loan

  A government-backed mortgage benefit for eligible veterans, active-duty service members, and surviving spouses — guaranteed by the Department of Veterans Affairs. No down payment required, no PMI, and competitive rates. A funding fee applies unless exempt.